Like a credit card, personal loan or mortgage, a car leasing deal is a chunky financial decision and your leasing company will investigate your credit history to ensure you fulfil your end of the finance agreement.
These agencies keep detailed records on everyone in the UK, covering things like past credit agreements and your repayment history. They pool this information and give people an overall credit score. (Think Big Brother but obsessed with your money.)
Credit reference agencies sell this information to large organisations to help them evaluate potential customers. For example, a mortgage provider will want to know if someone has a history of defaulting on loans.
Your credit report is fairly comprehensive and there's a tonne of things that positively and negatively affect your score. Some of the most common negative ones include:
- Missed payments
- How much of your credit you use
- How many accounts you have open
- Collection accounts
- Tax liens
- Civil court judgements
Credit reference agencies combine all the positive and negative factors to calculate an overall rating, categorising your credit history as: very poor, poor, good, very good and excellent.
Funders (the people actually buying the car and providing it to the leasing company) will usually require you to have a good, very good or excellent credit score to be considered for a car lease deal.
Do you need good credit to lease a car?
The reality is: a car lease is a chunky financial obligation and leasing companies prefer to lend to motorists with strong credit histories. So if you have a dozen County Court Judgements (CCJs) and Individual Voluntary Arrangements (IVAs) to your name, it's unlikely that a leasing company will hand over the keys to a brand new Mercedes-Benz S-Class.
In the next few sections, we'll look at what counts as a 'good' credit score for leasing, where you can check your credit score for free and what you should do if you fail a credit check.
What is a good credit score for car leasing/contract hire deals?
As I mentioned earlier, UK credit agencies rate your credit history on a five-point scale. And lenders will usually only approve you if you're in one of the top three bands: Good, very good or excellent.
However, your credit score is just one factor in your funder’s decision. If you have an excellent credit score, you might still be rejected. Leasing companies will also perform affordability checks to check if you have enough cash coming in to cover the monthly payments.
Where can I find my credit score?
Way back when, checking your credit score meant signing up to a free trial at one of the big credit reference agencies, quickly checking your report then cancelling your subscription before your account ticked over into the paid period. (Or, more likely, you completely forgot about your trial and woke up one morning to a huge bill - goodbye perfect credit score!)
Nowadays, however, you can check your credit rating at each of the three big agencies for free—and we're going to show you how.
- Experian: Experian has a slimmed down credit report you can access for free. It provides a kind of credit report selfie and is great for people who want a snapshot of their credit report. However, it doesn't give you the full story. For that, you'll need their full consumer credit report and there are two ways to get it. First, sign up for a free trial, check your score then cancel your account. Or second, sign up for Credit Club at Money Saving Expert. Credit Club is entirely free and gives you free access to your full Experian report. (Seriously, there's no strings. They make money if you take out a credit card or loan they recommend.)
- Equifax: Equifax is another big player and a tonne of leasing companies use their reports. There's two ways to check your Equifax score. First, sign up to their 30-day trial. (You know the drill: sign up, check and delete.) Alternatively, sign up to ClearScore. ClearScore is kinda like Credit Club in that it provides access to your credit report for free and makes money off affiliate deals. And like Credit Club, it's free forever.
- TransUnion: TransUnion is the smallest (and newest) credit reference agency. It's not used as widely as the other two but it's still worth checking to get a feel for your overall credit score. You can check your TransUnion score for free at Credit Karma.
What should I do if I fail a credit check?
Failing a credit check isn’t the end of the world, although it does mean you might need to wait a while before you lease your car.
If you do fail a credit check, your leasing company will probably get in touch with you to talk through your options. Usually, they won't tell you why you failed (although they sometimes will) so you’ll often have to go directly to the credit reference agency.
Once you’ve obtained your credit report, you’ve got a couple of choices. If anything is wrong — for example, it might say you have late payments when you’ve always paid on time — you should ask your leasing company to reevaluate your application. Most times, they will ask for additional paperwork like bank statements as proof.
Also, if anything is wrong in your credit report, you should contact the agency and request that it be rectified. Since the three main credit agencies operate independently, you have to do this with each individual finance company.
Inaccuracies in your credit report are relatively uncommon. Unfortunately, it's more common that there is a genuine reason for you to have a poor credit history.
If you have a poor credit score because of legitimate issues, there aren’t any quick fixes. The Money Advice Service has some excellent advice on improving your credit score.
Once you build your credit score back up, you can reapply for a car lease and, hopefully, pass the credit check this time.
What cars can I lease with a bad credit rating?
Generally speaking, there are no manufacturer-specific rules about leasing to motorists with a poor credit rating. However, what does count is the value of the car and the value of the contract. Expensive cars and pricey leasing deals are riskier investments. If you write off a Ford Fiesta, that's £15,000 down the drain—not great but also not the end of the world. On the other hand, if you write off an Audi R8, that's £120,000 gone! In general, you are more likely to be approved for a cheap Renault hatchback than a luxury Mercedes-Benz SUV if you have a bad credit score. If you have no deposit, you probably have no chance of getting accepted for a premium car, but if you do, that BMW might still be in reach!
Other options for bad credit car leasing
Getting declined for that BMW coupe lease deal isn't the end of the world and there are a bunch of options available to you—some good, some bad and a few illegal. In the next few sections, we'll talk through three of the most popular options for leasing with bad credit.
Can someone lease a new car for me?
As with insurance, it's often tempting to put a deal in someone else's name to sneak it past the provider. It's called accommodation finance and it works. In fact, hundreds of people do it every year. There's just one problem: it's forbidden by the car finance provider. And while accommodation finance isn't technically illegal in principle, it usually involves not declaring that the person taking out the lease is not the main driver—and that is illegal.
In short, accommodation leasing is possible but it's really not a good idea.
Can I use a guarantor to get accepted for a lease vehicle?
Another option is to have a third-party guarantee your lease. A guarantor is simply someone who agrees to step in and pay your bills should you default. Usually, a guarantor is a close family member like a parent and they'll need to have an exceptionally strong credit report. Unfortunately, most car finance providers don't accept guarantors—but you might get lucky and find a funder who'll consider your offer.
Can I make a joint finance application?
A joint application is a mix of the two other options. With a joint application, two people apply for the new vehicle lease together so their incomes and credit scores are combined. If they're accepted, both parties are responsible for the monthly payments. In virtually all cases, the two people need to live at the same address, which effectively limits joint applications to families.
Should I try and lease with bad credit?
I wish this article ended on a happier note but the reality is that it's tough to lease your perfect car with bad credit. While you can lease with poor credit, you'll usually have to lease through a specialist company—and that can result in more expensive monthly repayments. But if you're set on leasing, don't let that dissuade you. Shop around, compare prices and don't sign up to a leasing contract unless you're happy with the specifics.
For the rundown of the cheapest car lease deals, check out LeaseFetcher!